Best Buy agrees to let founder Schulze conduct due diligence

Best Buy Co., the world’s largest electronics retailer, and founder Richard Schulze reached an agreement that will allow him to conduct due diligence in his effort to acquire the retailer.

Schulze can bring a fully financed, definitive proposal to the company within 60 days, and if that offer is rejected, he must wait until January to pursue an acquisition through other means, the Richfield, Minnesota-based company said today in a statement.

The agreement gives Schulze, 71, immediate access to financial data that may help him line up private-equity firms he needs to fund a takeover of the company he founded more than four decades ago and left in June. Talks between Schulze and Best Buy broke down on Aug. 19 and resumed two days later after the company posted quarterly earnings that trailed analysts’ estimates, a person familiar with the matter said last week.

“With access to company records, he can perform the due diligence that would be a condition of any potential private equity partner,” Michael Pachter, an analyst at Wedbush Securities in Los Angeles, said today in an e-mail. “He will have difficulty raising an additional $1 to $2 billion in equity from a partner, but without due diligence, his chances of raising that much in equity on blind faith were zero.”

Pachter rates Best Buy underperform, equivalent of a sell, and said Schulze has 20 percent to 30 percent odds of raising equity backing.

Best Buy rose 5.9 percent to $18.33 at 9:53 a.m. in New York. The shares had declined 26 percent through Aug. 24.

Board Seats

The board also will offer Schulze, who holds about 20 percent of the shares, control of two board seats, Best Buy said. Schulze would lose the opportunity to control those seats if he violates the standstill provisions of the agreement, the company said. Best Buy also agreed to waive a Minnesota takeover law that Schulze said was limiting his ability to line up private-equity investors and committed financing.

Schulze has offered to take Best Buy private for as much as $9.5 billion and said he would contribute at least $1 billion in equity to the deal.

Earlier in the negotiations, Best Buy had asked for a fully committed offer from Schulze within 60 days and stipulated that it remain in place for several months, people familiar with the matter have said. Schulze sought 90 days to obtain financing and didn’t want to incur millions of dollars in fees for keeping commitments together for an extended period, they said.